Guest Post by Willis Eschenbach
Well, having had such a good time with M. King Hubbert meeting the EIA, I thought I’d toss out another puzzle. This one is inspired by a statement from the King himself that someone quoted in that thread, viz:
“A child born in the middle 30s,” Hubbert told reporters, “will have seen the consumption of 80 percent of all American oil and gas in his lifetime; a child born about 1970 will see most of the world’s [reserves] consumed.”
Since M. King Hubbert was concerned about how most of the world’s reserves were going to be consumed, I thought I’d see how much of the US reserves have been consumed over the last third of a century. It’s an interesting answer …
Figure 1. A comparison of the annual estimates of the US proved oil reserves (red line), and the US cumulative oil production (blue line), for the period 1980-2012. Data from the 2013 BP Statistical Review of World Energy. “Proved reserves” in the dataset are defined as follows: “Proved reserves of oil – Generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions.”
It appears that since 1980 we’re totally out of luck. First we completely used up every drop of the proved reserves.
Then we used them all up again. Then we used them all up for a third time … and the proved reserves are still about where they started. Go figure.
Since the King was also concerned about using up the US and global natural gas reserves, I thought I should look at that as well.
Figure 2. A comparison of the annual estimates of the US proved gas reserves (red line), and the US cumulative gas production (green line), for the period 1980-2012. Data from the 2013 BP Statistical Review of World Energy.
Well, it’s about the same story. We started in 1980 with 6 trillion cubic metres of proved reserves of gas. Since then we produced almost 18 trillion cubic metres, about three times our original reserves. The main difference between the gas and oil is that the proved reserves of gas are about a third larger than they were in 1980 … go figure indeed.
I bring this up for a simple reason—to show that we don’t know enough to answer any questions about how much oil and gas we’ve used, or to determine if the King was correct in his claims. According to all the data, since 1980 we’ve used three times the proved reserves of oil and gas, and despite that, the proved reserves are the same size or larger than they were back in 1980. So how can we decide if Hubbert was right or not?
Now, please don’t bother patiently explaining to me all of the reasons for this curious phenomenon, because I’ve heard them all. I assure you, I understand the difficulties in estimating proved reserves, and the fact that the numbers come from the oil companies, and that technology improves, and that the companies tend to explore until they’ve got maybe twenty years in the bank, and the fact that the reserves numbers are sometimes radically revised, and that economics plays a huge part, and the rest … I know all the reasons for what I showed above.
I’m just pointing out that it is very, very hard to say what will happen to future reserves, or what their total extent is, or how much recoverable energy the world contains.
The underlying problem is that the proved reserves represent the amount of economically recoverable gas and oil … and that, of course, depends entirely on the current price and the current technology. In other words, the amount of “natural resources” in the world is not really a function of the natural world—it is a function of human ingenuity. For example, in the 1930s, the big concern was “peak magnesium”, because the proved reserves of magnesium were dropping fast. Or they were, until a clever chemist realized that you can extract magnesium from seawater … at which point the proved reserves of magnesium became for all purposes infinite.
Now, did the natural world change when the proved reserves of magnesium went from almost none to almost infinite? Like I said, the amount of natural resources depends on human ingenuity, and not much else.
Best regards to all,
w.
PS—Again, if you disagree with something that I or someone else said, please QUOTE THEIR EXACT WORDS and state your objection. That way we can all understand just what you are objecting to, and the nature of your objection.
tty
conventional oïl , is oil that migrated into a bad reservoir or a good reservoir that has been more or less dégraded by diagenesis and or burial ; unconventional oïl is oïl trapped in its source rock; porosity and permeability of both rocks are very different as are there reactivity to stimulation
As others have commented, proven reserves are a function of both price and current technology, and thus the US reserves of 20 billion barrels stays much the same whilst cumulative production is a straight line. With regard to ‘peak oil’ and alarms, it would be more useful therefore to look at known reserves and the rate of discovery of new fields, as well as global demand and rates of depletion. I have not done so recently – so maybe Willis, you can tackle this one. But I would expect little change from the time when reasonably recoverable reserves were estimated at about 1000 billion barrels, and known but less easily recoverable reserves were another 1000 billion. The rate of new discoveries has not altered this estimate – despite tar sands, oil shale, Brazilian oceanic fields etc.
Current global demand is about 30 billion barrels per year – 85 million per day, and has been flat for about a decade – with China taking up the slack from economies that have significantly reduced their oil demand. In that time, the price per barrel has doubled and remains high. Those oil producers that can vary their production and manipulate the price do so in order to keep the price high, but not so high it reduces demand. Anything above $70 per barrel enables ‘unconventional’ oil sources (known reserves) such as tar sands, to become ‘proven’ or recoverable, and that reserves expands further at $100 per barrel, where the price currently hovers.
There will be no ‘peak oil’ but a long plateau of production matching demand – I would guess another 10 years. The balancing act really relates to the stability of the global economy. There are financial analysts who reckon that $100/barrel is not sustainable and that the current western economies are simply living on unsustainable levels of government debt. This sort of price is already crucifying many economies in the ‘developing’ world. Technically, recoverable reserves can be expanded fro several decades at prices of $150 or even $200/barrel, but economically? Most financial analysts would say no way.
I have argued in my own work (as ‘greenie’!) that renewable energy strategies are pie-in-the-sky. Wind is double the cost of fossil fuel electricity and ‘economic’ only with subsidy (nuclear about the same). Biofuels are 3-5x the fossil fuel costs. Solar between 5-10x. Those greens who are deluded (most of them) argue that as fossil fuel costs rise, renewables will take over – but what kind of economy do they imagine can survive those costs? Additionally, these cerebrally challenged so-called environmentalists cannot bring themselves to look at the areas of sufficiently fertile currently unused land that biofuels would require – it is simply not available.
Those of you who ‘believe’ in nuclear salvation – such as Fast Breeder reactors – need to study the fuel cycle (I spent 20 years doing that) not only for its risks – which are considerable, but also its costs. Breeders require reprocessing technology, hot-liquid-waste storage, and eventual boro-silicate glass stabilisation (nobody has yet proven a ‘disposal’ option) – all very expensive to reduce the risk profiles and one serious release will doom the technology. Has anyone costed the thorium option – if so, I would like to see it.
Seawater contains just about every mineral and nutrient we could possibly need – but at a cost to extract, and it does not help for techie-believers to add to the miserable world of greenie-believers. We all need to get real.
Steve from Rockwood says:
January 13, 2014 at 6:19 am
stanb999 says:
January 13, 2014 at 6:10 am
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“cheap” is a relative thing. America has not run out of cheap oil otherwise people would not be driving around in pick-up trucks and SUVs. Parts of Africa have run out of cheap oil simply by the fact they can’t afford to buy it.
The cost of production is the only factor that matters. Of course reserves will climb forever.
The cost of production limits overall reserves only by the price people are willing to pay. So far there hasn’t been much resistance.
Really? Then why is fuel usage down so much in the USA even tho we have more people? One needs not be gifted at reading tea leaves to forecast certain things, Increased cost in a limited resource is a no brainer.
stanb999:
Your reply to me at January 13, 2014 at 6:35 am demonstrates that you did not read the link I gave you. Here it is again
http://wattsupwiththat.com/2014/01/10/natural-gas-switch-from-coal-brings-power-plant-emissions-down/#comment-1532437
I again ask you to read the link.
As I said, it explains that
“In reality we have not, and we know we will not for at least 300 years, and there is good reason to suppose we never will.”
And it says NOTHING about gas or any other of your twaddle.
Steve from Rockwood and I have each given you good information and your only response is to refuse to read it and to post ignorant and unrelated nonsense.
Richard
Willis, I know you didn’t want to hear about reserves as a stock for a company looking out 10-15yrs, but this simple idea is exactly the crux of what is totally misunderstood by such as the club of rome and other centrally planned minds. I urge those who think it is only a technological crap shoot – new tech- new reserves to look at it as follows: Over the long haul, the tech is the ultimate of importance but meanwhile, reserves are just a company inventory. Because the oil sands are a “strata-bound” deposit, we have known for more than half a century that there is billions of barrels of likely recoverable oil (500 billion, I seem to recall from away back). However, the carefully measured reserves of extractable resources for a given plant and property are the reserves that get aggregated as the “certain” figure. We know there is much more.
Nillius in verba. Why do not more scientists and journalists get it?
richardscourtney says:
January 13, 2014 at 6:48 am
stanb999:
Your reply to me at January 13, 2014 at 6:35 am demonstrates that you did not read the link I gave you. Here it is again
http://wattsupwiththat.com/2014/01/10/natural-gas-switch-from-coal-brings-power-plant-emissions-down/#comment-1532437
I again ask you to read the link.
As I said, it explains that
“In reality we have not, and we know we will not for at least 300 years, and there is good reason to suppose we never will.”
And it says NOTHING about gas or any other of your twaddle.
Steve from Rockwood and I have each given you good information and your only response is to refuse to read it and to post ignorant and unrelated nonsense.
Richard
Posting drivel is you! Coal isn’t crud oil. Fuels can be synthesized from it, but it isn’t cheap and it doesn’t have near the convenience of crude flowing from the well bore. The Germans did this in WWII, not a new process or new idea.
Your deep desire to justify your oil consumption is interesting. I frankly couldn’t careless about your conspicuous consumption or that of other Americans. Fact is fuel is more expensive today than in the past and next year it will cost more than today. That trend will continue till the cost of burning the fuel is prohibitive. Your suggestions to the contrary don’t hold water.
Another inconvenient post for the “Control Crowd”, and another excellent example of that applied Human Ingenuity, Willis.
My only concern is your use of terminology, particularly the word “proved”.
Mining engineers generally follow the standard reserve classification of “proven, probably, and possible”, which corresponds to decreasing levels of confidence in computerized block models, each term defined by a particular value of the estimation variance associated with block estimates in the model.
That way, block models of different deposits can be compared directly, the estimation variance being a function of the 3-dimensional spatial correlation obtained for the values of interest–for example gold or silver. While not an absolute, (drill hole spacing, block size and the nugget effect tend to cause problems, along with other factors) they are quantifiable and reproducible.
Geologists use the standard Resource/Reserve Classification for Minerals found in the USGS Mineral Resources Program – 190 Appendix A. Starting with page 191 of that document, it gives a series of definitions—Resource, Original Resource, and Identified Resources, which is in turn divided into Measured, Indicated and Inferred, somewhat comparable to Proven, Probable, and Possible.
Then it defines Reserve Base, Inferred Reserve Base, and so on.
When discussing natural resources, MRP 190 has all the terminology needed to describe these various categories, and mining practices using sophisticated computer algorithms have further refined the terminology based on estimation variance.
Energy commodities like oil and gas have their own definitions but generally use “Oil Reserves” which are calculated based on a proven/probably basis. These commodities are also modeled using sophisticated techniques.
Hence, I’d suggest the term “proven” rather than “proved”, as in “proven reserves”.
Many years ago, I used to oversee the reserves reporting for my company’s share of a large oilsands plant. The work was done by an engineering consultant but was rather simple.
As I recall, the long term production forecast was projected for the licensed term of the project, and that was our proved reserves – subject to the whole project remaining economic.
When the Alberta government approved our request to extend the plant license by another five years, we booked another five years of proved reserves.
Our oilsands resource in the ground was many times larger than our proved reserves.
Later I initiated the successful turnaround of our conventional Canadian Oil and Gas Division. We found that reserves had been booked thirty years earlier for discoveries that still were not on production, because they were too far from pipelines. Apparently overbooking of reserves was much more common up to about 1990 in Canada, when this practice was strongly discouraged after some disastrous public failures drew attention to the problem.
More recently one of the majors (who shell remain nameless) was publicly spanked for overstating their reserves.
The incentive for management to overbook reserves is apparently to hide lack of performance and hopefully get handsome bonuses and retire and dump the problem onto your successor. It only takes a few bad apples to spoil the lot.
@ur momisugly SideShowBob
Thanks for the link you provided, http://www.smartplanet.com/blog/the-energy-futurist/the-cost-of-new-oil-supply/
I’ve learnt a bit. Here in Australia, I hadn’t heard the term NGPL, which your link’s author defines as ‘Natural Gas Plant Liquids’; but thanks to Google I understand it to be what I call ‘LNG’ (liquefied Natural Gas) or LPG (Liquefied Propane Gas). (It was the ‘Plant’ that really threw me.)
I may well be misunderstanding the argument you’re putting forward. Here I paraphrase it as I understand it:
The cost of fossil fuel is set at the marginal cost of production. The marginal cost is the most expensive litre to produce. New sources of oil will have higher production costs than conventional sources. This high price will deter purchasers from buying oil.
The first thing I note is that this is not the least bit surprising. He’s just expounding the standard supply and demand curve.
The consequence of that curve is that the amount the purchaser wants to buy and the amount the producer is willing or able to produce will be equal to each other at only one price, the market price. And so, the producer will sell less than he’d like at a price lower than he’d like, for less profit than he’d like. The purchaser will buy less product than he’d like, at a price higher than he’d like, for more cost than he’d like. But it will be the most economically efficient allocation of resources.
The second thing is that the supply and demand curve (and therefore his argument) is too simplistic. It assumes the last item produced will be the most expensive of all. But this ignores the difference between fixed and variable costs. Using hand-waving figures, as this is a discussion of principles rather than practicalities, a pipeline that transfers 100 kilolitres of fuel a day might be able to do so for an amortized cost of 10 cents per litre. But this doesn’t mean the next 10 kilolitres will cost $1,000.00. Those costs are already amortized. The extra cost might be one tenth of a cent per litre.
The third point is that the argument assumes there will be no reduction in production costs. At first glance, this seems reasonable, as we pick the easy fruit first. But there are no grounds to assume economic efficiencies will not be discovered. And scientific and technological progress are not going to stop abruptly.
I’m personally amused by the fact the last time I heard somebody claim that it would so stop was in connection with ‘peak oil’, saying words to the effect of “and there are no technological advances in sight for the next 20 years”, just before the announcement of all the techniques of ‘unconventional oil’. You can choose to take my word on that or not, as I’ve forgotten the source while remembering the comment.
My fourth point addresses your “… future oil will not be able to compete with renewables sorry that’s the way it is”. I don’t profess to be as certain of the future as that. Certainly it might happen, and if it does, I have no problem with that. A diesel generator is more expensive than electricity from the grid, but I’m as happy to use a generator in my off the grid shack as I would be unhappy to use it in my suburban home.
My concerns with the source of the wiggling of the electrons in my wiring are possibly the same as yours- its cost, its reliability and its environmental impact. I’ve listed them in the order of importance of those concerns. I accept others would order them differently, but that’s their privilege, as ordering them this way is mine. There’s no reason for you to say ‘sorry’ if that’s the way the economics turns out. Unless of course, you interfere with the market, thus wasting my money and society’s resources. And probably damaging the environment more than if you’d just left things alone, as the Greens have done to Germany. http://joannenova.com.au/2014/01/germanys-greens-help-the-coal-industry-while-the-us-cut-emissions-by-ignoring-the-greens/
Those who argue that we’ll end up using renewables anyway so we should help it along right now, are obviously not as morally defunct as those who say “Since we’ll all end up in the grave anyway, we might as well help them along.” But they are wrong in the same direction, and for the same reason. Well, that’s how I see it. Your mileage may vary.
In summary, I find the argument you link to is mistaken, but even if it turns out that I’m the mistaken one, the argument does not justify switching to renewables before it’s economically rational to do so.
Fritz says:
“conventional oïl , is oil that migrated into a bad reservoir or a good reservoir that has been more or less dégraded by diagenesis and or burial ; unconventional oïl is oïl trapped in its source rock; porosity and permeability of both rocks are very different as are there reactivity to stimulation”
I notice that under this definition Venezuelan heavy oil in sandstone (and the Alberta Tar Sands for that matter) is “conventional oil” since it has migrated into a bad reservoir. And what is oil that has migrated into a good and undegraded reservoir?
we have left about 80% of the [recoverable] oil in the ground, we are only producing the cheap oil and gas.
stanb999:
You post more nonsense at January 13, 2014 at 7:06 am.
I have twice provided you with the link. Here it is again
http://wattsupwiththat.com/2014/01/10/natural-gas-switch-from-coal-brings-power-plant-emissions-down/#comment-1532437
I am providing this again so others can easily access it.
Your failure to again read the link is demonstrated by your claiming I am an American.
If you had read the link then you would know I am British and I worked on the research development and demonstration of the LSE process which was all conducted in the UK.
As the link says,
The link explains the surprising economic competitiveness of LSE then concludes that explanation saying
I have had enough of you and your nonsense.
I have better things to do than to keep providing information to an ignoramus who repeatedly refuses to read it and always responds with nonsense. So, I shall ignore anything else from you.
Richard
Brilliant!
All we know is what we are told, and we aren’t told much at all. As long as the human mind has an infinite capacity for innovation, and it does, then nothing is finite in any practical sense. One day our inventive spirit will launch us off of this rock and into the universe. What a future beckons.
Friends:
I write to draw attention to the excellent post by Leo Morgan at January 13, 2014 at 7:23 am.
This link jumps to it if you missed any word of it.
http://wattsupwiththat.com/2014/01/12/more-fun-with-oil-and-gas/#comment-1534409
Richard
stanb999 says:
January 13, 2014 at 6:39 am
Steve from Rockwood says:
January 13, 2014 at 6:19 am
stanb999 says:
January 13, 2014 at 6:10 am
——————————————
[snip]
The cost of production limits overall reserves only by the price people are willing to pay. So far there hasn’t been much resistance.
Stan, gasoline and diesel consumption have risen virtually non-stop since 1920 as the link clearly shows. Why is fuel use “down so much in the USA”? Well since 2009 fuel use may have dropped but unless you were living under a rock there was a world-wide recession. There have also been incremental improvements in fuel mileage to offset population growth on the consumption side.
http://energy.typepad.com/the-energy-blog/2010/01/the-history-of-us-oil-consumption.html
While USA oil consumption for gasoline dropped (due to the recession) in 2010 and 2011, there were signs in 2012 that it was picking up again (as the recession ends).
http://www.eia.gov/todayinenergy/detail.cfm?id=7510
In 2013 USA gas consumption remained slightly lower than 2012 and off its peak in 2007 (the peak of the economic boom) but the reason is cited as improved fuel efficiency, particularly in fleet vehicles.
http://www.upi.com/Business_News/Energy-Resources/2013/09/06/US-gasoline-consumption-declined-in-first-half-of-2013/UPI-35411378468013/
“Then we used them all up again. Then we used them all up for a third time … and the proved reserves are still about where they started. Go figure.”
“We started in 1980 with 6 trillion cubic metres of proved reserves of gas. Since then we produced almost 18 trillion cubic metres, about three times our original reserves. The main difference between the gas and oil is that the proved reserves of gas are about a third larger than they were in 1980 … go figure indeed.”
___________________________________
There is no figuring needed at all. This simply reflects companies moving “resources” into “reserve” categories. See my link above to the SPE definitions – these are technical terns with defined meanings. If you want to evaluate the Hubbert theory, it can not be evaluated in terms of SPE / SEC reserves.
Good job Willis. I will not get into the response aspects that you requested not to be posted. I will say that you have reminded readers of the often misunderstood and counter-intuitive concept of relative scarcity. Someone needs to start a blog on the assorted list of counter-intuitive concepts out there in science and the economy. Such a list might be valuable if it forestalled just one major policy mistake along the way in a policy landscape often littered with learning through crisis mode.
A quick note about SEC requirements. You are only allowed to book as a “proved reserve” what you can effectively drill up based on your available capital in 5 years. You may have 1 TCF of proven reserves, but if you only have the capital to access 2 BCF over 5 years then that is all you can book. That is part of why the proven reserves number stays relatively flat. The amount of capital to access the reserves as a proportion of the cost has remained relatively stable. You see the dip in reserves from the 80’s to 00’s due to depressed oil prices. Subsequently, a large portion of the reservoirs became economically inaccessible and had to be removed from the books.
Also, if you do not or cannot access the reserves after 5 years of them being on the books, they are written off. This is pretty common, but they are often replaced with other reserves to cover the difference. As companies learn more about individual reservoirs (especially in unconventionals) they can high grade targets and go after higher rate of return areas. This shift in capital is often taken from lower rate of return areas. In turn, those inaccessible with the current capital reserves are removed from the books. That does not meant the oil is gone, it simply means that it will not be accessed in 5 years.
From Section 108 rule 4-10(a)(8) FAQ –
If an investment decision has been made to develop only a portion of the primary, secondary or tertiary reserves, the remainder of the reserves would not be considered to be proved reserves until such time as management has made an investment decision to develop those additional reserves, the requisite level of certainty has been demonstrated from the initial portion of the development or by other means, and the additional development is within five years of being initiated. [Oct. 26, 2009]
The last line covers the 5 year rule. After oil is produced it is subsequently removed from the proven books as well. Since it is no longer accessible. Therefore you are constantly adding reserves and taking them away throughout the process. Think of it more along the lines of, this is how much oil we can access over the next 5 years.
My two cents and how I understand the rules. I am not an engineer and am not involved in booking of any reserves. I only understand this enough to get myself into trouble. 🙂
I just thought this might help out with understanding why the proven reserves number remains the same. The graph actually shows that we are consistently adding accessible reserves in the US at about the same rate we are removing them (either through producing or removing them due to economics).
These graphs confound reserves (estimated amount that can be future extracted) with rate of extraction. Balance sheet Reserves (you post EIA estimates of same) grow in three ways: new discoveries, increased estimates about remaining reserves in existing discoveries from EOR, and increased estimates from higher prices since these are economic reserves and not TRR. As an example, Monterey shale TRR is 15bbbl (EIA 2013) but economic reserves (Getty, Chevron) are close to zero for geophysical/ economic reasons posted on your previous thread. IEA makes similar distinctions in its future projections by explicitly starting with projected higher future prices.
Peak oil is about the annual rate of extraction whichnis only loosely related to how much eventually will be. Hubert used a logistics curve; that is in orrect, as all fields follow a gamma function with a long decline tail. The prediction error is small, since the ” front half” of logistics curves are very similar to actual field gammas. As new fields become more marginal (e.g. less permeable measured in darcies), and as EOR expands, the totalannual production rate for a field, a basin, a region, and eventually the world must eventually fall far before reserves are depleted.
For example, the max annual production of Ghawar (world’s largest and ‘best’ field with light sweet crude in permeable sandstone) was over 6mbbd in about 1980. The fields five sections have been fully reworked for EOR using water flood. As the watercut has risen, the annual oil extracted has fallen to about 4mbpd, and the Saudis will continue to reduce the production rate in order to eventually extract as much total oil as possible before the field is exhausted in about 2035-2040. It went into production in 1949.
In the 2008 IEA survey of the worlds 800 most important fields, the actual peak in production was hit on average when just 24% of the estimated reserves had been produced. Prudhoe Bay and the UK/Norwegian North Sea basins all have about this 1/4 ratio of peak production to reserves. It appears to be a pretty constant feature of conventional oil ( correctly defined for you in a comment to your previous thread).
Your analysis is simplistic, and in this thread compares apples to oranges. You need to read up more on petroleum engineering and geophysics.
Steve from Rockwood says:
January 13, 2014 at 7:42 am
I cut out most of our prior posts for ease of response. I hope your ok with it.
Claiming the recession that was aided by elevated oil prices is some how now responsible for the fall in consumption puts things in an upside down.
Oil prices rose first. Then the markets faltered. Not the other way around. As the economy recharges, energy prices will rise to throw cold water on the ember of growth. We are in fact living what a majority of the peak oil promoters were forecasting… A slow slide in the economy till a new lower level of energy consumption is the norm.
richardscourtney:
After seeing rather large amounts of money spent on an integrated-gasification-combined-cycle plant (Edwardsport in Vigo County, Indiana), your comment about “sulphur bottoms” in the LSE process made me wonder whether burning syncrude directly for electricity generation has any emissions benefits. (Sulfur, mercury, etc.) Any idea?
The key to the future of oil and gas, including hydrates is not the occurrence of hydrocarbons, but the energy cost of getting them to market. We generally call this the “cost”, meaning financial, and it is a reasonable proxy for energy cost. The future, to quote myself, is not dark, but it is expensive.
To use just one example, the North Dakota Bakken oil production from frac’d deep zones: The Bakken oil (lately in the news due to setting fire to Lac Magantic, Quebec, and killing 47 people in a derailment of Bakken-filled oil cars), has a gross (and, I’d say, overprojected) producible reserve per well of 500,000 barrels. The drilling cost is $10+ million, with an all-in cost of perhaps $11 million/well to take into account pipelines, facilities etc. With an oil price of $100/bbl, the netback, i.e. profit after operating costs, is perhaps $60/bbl. That means that the first 183,300 bbl simply pays for the ability to get the oil to the surface pipeline. If we then include transportation costs, processing costs, still using the $60/bbl netback, we can see that the first 250,000 bbls of oil are expended simply in getting it to a useful state in a useful condition. Now one might say that we sill have 250,000 bbls left of this theoretical well well to use beyond that, i.e. the “free” or profit oil, and that is true. But what we have to remember is that as the field develops to the edges, the individual wells do not provide 500,000/well, but the costs remain the same (the cost savings through field maturity and development do not substantially drop. In theory they should, in practice they don’t. You are either efficient operators in the beginning, or you are not ever efficient operators. It is only in the discovery phase that costs are way higher.)
So we can find these new reserves. The in-place numbers are high. But the costs of getting them in terms of what is got are higher now than they used to be. Plus the actual recovery is still uncertain. The reason that we have such high production rates in deep, tight formations like the Bakken, is that they are at very high pressure (48,000 to 56,000 kPa) AND gas charged. The gas that comes with the oil is the true driving force, and there is so much gas that it has lead to the current gas glut and low price: the gas HAS to be got-rid-of, and in an excess productivity market, you have to price it low to get ride of yours as you are in competition with others’ gas.
But that sounds fine: get gas, get oil, we’re happy …. except that as the production goes on, the pressure drops. And then gas flow increases relative to oil production. You COULD reinject the gas, but that is not going on and for good reason: tight formations do not accept reinjection well. So as time goes on, the oil gets left behind. What will the final recovery be? Too early to tell. But I’ll bet it is less than promoted. Reality is generally a mean person compared to theory.
The Marcellus, the Bakken, the Three Forks – all of these oily reserves are in gas-drive reservoirs. Expensive ones. GAS producers are more of the $4-$6/mcf production costs. Which means that current gas prices in the US are below cost for pure gas: the gas price is being subsidized by the oil profits. Roll them together, and the whole thing looks great. Taken ’em apart, and the oil part is fantastic and the gas is not good at all.
To talk of the hydrates is to talk about the Bakken three times as shrill. Again, it is not a question that the hydrocarbons are there, but that they are expensive in energy costs to get them to a useful condition in a useful place – just like the offshore wind turbines are much more expensive to get operational than the onshore ones, even if power levels are higher and more dependable.
We are moving into a future with technology giving us access to energy supplies that was not available previously. Here in Alberta we have large oil and gas reserves in, as an example, a Duvernay Formation. But even Exxon finds the costs prohibitive. Same with all the oil and gas in the Arctic. It is there, but is is way expensive. And again, we can’t think of “expensive” in just monetary terms as, say the Soviets did. We have to think of it in terms of energy in-for-energy out.
As time goes by it takes more molecules of hydrocarbons expended to get a molecule of hydrocarbon to use elsewhere. The oil and gas industry may become larger, i.e. the big companies become larger and involved in big projects, but the usable product as a proportion of what is found is diminishing. We have two or three times what we have already produced that is still in the ground, as well, that sits there for the same reason: the energy required to get the remaining reserves to surface is a large proportion of the energy contained in those reserves.
I write all this as a long-term oil and gas explorationist and development geologist. I am not disputing the oil and gas reserves on the planet. I am disputing the idea that the future has cheap energy in it. We are not developing the oil sands of Alberta because it is cheap or energy-efficient, but because the costs RELATIVE TO other sources of oil are fairly equal. Which means that conventional supplies are gone in meaningful amounts, and unconventional supplies, i.e. expensive, difficult supplies, are the only option we now have.
In Europe/Britain, energy costs are twice or more what they are in the States and Canada. But the reason for that is largely taxes. However, as the recent report on the Bowland Basin shales showed, the PRODUCIBLE and RECOVERABLE reserves are far lower than the in-place: I say this confidently because when you read the report, you see NO recoverable data, only in-place data. And not only from the British Geological Survey, but the Centrica-type public company. The actual benefit from these shale plays – mostly gas, by the way – is probably so low nobody wants to talk about it publicly. Oh, it is there, but again, at what cost?
We live in interesting times energy-wise. Nuclear fusion was supposed to solve all our energy sourcing problems, just as efficient batteries were supposed to solve our energy storage problems. Neither has worked or looks to be moving fast enough to be working without some as-yet-unknown technolgical breakthrough. A Hail Mary solution, if you will. Not a good plan for a cilivlization. Fossil fuels are going to be with us for a very long time. And the resurgence of coal is a sign of what is going on.
With coal, ACCESS to the coal becomes more difficult, but production does not with time. With oil and gas, access AND PRODUCTION becomes more difficult with time. With coal, more surface has to be removed, but the initial shafts have to be deeper, but after that the trucking and mining costs are the same. With oil and gas, you have to drill deeper in hotter, tighter or fractured rock, and then you have to spend more energy in fackking deep and production facilities on the surface. Once more the true energy-in-energy-out is increasing, but more so for oil and gas.
Which is to get back to the initial dispute I have with much of the arm-waving about energy supplies in the future. It won’t be cheap and it will not, absolutely not, be cheaper.
stanb999:
At January 13, 2014 at 6:10 am you mistakenly assert
Peak oil isn’t about running out of oil. It’s about running out of cheap oil. We have.
That statement is false, the proof is here, provided by Willis Eschenbach, showing the proce of oil has not risen for 100 years.
http://wattsupwiththat.com/2014/01/11/m-king-meets-the-eia/#comment-1533672
“Now, did the natural world change when the proved reserves of magnesium went from almost none to almost infinite? Like I said, the amount of natural resources depends on human ingenuity, and not much else.”
It’s a bit diferent from that.
Reserves for any company doing business with the USA is a matter between it and the SEC. The company is obliged to measure reserves according to standard definitions and re-measure every year.
Resources, the oil in place, are never known because it would cost too much to measure something no one cares about. It has happened, for insance, that an oilfield’s cumulative production has amounted to over 100 percent of the estimated original oil in place (OOIP=resource).
One significant question: What is the rate of oil generation at an existing field that has been under production for a hundred years: Bradford, and fields in the the Los Angeles Basin, for instance?
One significant quote: “Minerals are essentially inexhaustible. Oil, gas, coal, and copper, for example, will never be depleted. Investment in exploration and development creates an in-ground inventory of proved reserves, constantly used and replaced. If replacement cost–the investment required to find and develop new deposits–drifts so high that nobody will pay a price sufficient to justify additional investment, the inventory will not be replenished. the (sic) industry will disappear no matter how much remains in the ground–an amount unknown, probably unknowable, and ultimately unimportant.” (M.A. Adelman, 1991)